ASTEC INDUSTRIES INC (ASTE) FY 2023 MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included in Item 8 of this Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations and other information included herein are not necessarily indicative of the financial condition, results of operations and cash flows that may be expected in future periods. This Annual Report on Form 10-K, including matters discussed in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to our plans, estimates and beliefs that involve important risks and uncertainties. See "Safe Harbor Statements Under the Private Securities Litigation Reform Act" and Part I, Item 1A. Risk Factors for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements.

This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. A similar discussion of 2021 items and year-to-year comparisons between 2022 and 2021 can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022.

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The financial condition and results of operations discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Astec Industries, Inc. and its consolidated subsidiaries, collectively, the "Company," "Astec," "we," "our" or "us."

Business Overview

We design, engineer, manufacture, market and service equipment and components used primarily in asphalt and concrete road building and related construction activities, as well as certain other products. Our products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. We also offer industrial automation controls and telematics platforms as well as manufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction, demolition, land clearing and recycling industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; commercial and industrial burners; and combustion control systems.

Our products are marketed both domestically and internationally primarily to asphalt and concrete producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; forestry and environmental recycling contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, we manufacture and sell replacement parts for equipment in each of our product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of our business.

Executive Summary

Highlights of our financial results as of and for the year ended December 31, 2023 as compared to the prior year include the following:

•Net sales were $1,338.2 million, an increase of 5.0%

•Gross profit was $330.8 million, an increase of 25.3%

•Income from operations increased $41.1 million to $48.6 million

•Net income attributable to Astec increased $33.6 million to $33.5 million

•Diluted earnings per share were $1.47, an increase of 100.0%

•Backlog of $569.8 million, a decrease of 37.6%

Significant Items Impacting Financial Results in 2023

Strategic Transformation Program

We are undergoing a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and requires substantial time and attention of management and key employees. We materially completed the ERP global design in 2022, launched the human capital resources module in our locations in the United States in January 2023 and converted the operations of one manufacturing site along with Corporate during the second quarter of 2023 to set the foundation before accelerating the implementation at additional sites in 2024 and 2025. We anticipate incurring total costs associated with the ERP implementation in the range of $125 to $150 million, with an estimated $25 to $30 million incurred per year which began in 2022.

In addition, in the first quarter of 2022, a lean manufacturing initiative at one of our largest sites was initiated and is expected to drive improvement in gross margin at that site. We substantially completed the design efforts for this project during 2022. We also began executing investments to acquire and install manufacturing equipment intended to drive increased efficiencies in our production processes. We have continued these capital investments during 2023, which are largely completed as of December 31, 2023. Gross margin improvements are expected to be realized in conjunction with the project completion in early to mid-2024. This improvement is intended to serve as the optimal blueprint for our other manufacturing facilities.

Total costs of $29.7 million were incurred related to these strategic transformation initiatives in 2023, of which $29.4 million and $0.3 million are recorded in "Selling, general and administrative expenses" and "Cost of sales", respectively, in the Consolidated Statements of Operations. Costs totaling of $25.5 million and $13.4 million were incurred in 2022 and 2021, respectively, and are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Capitalized

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implementation costs associated with the ERP implementation totaled $30.6 million, of which $3.3 million and $27.3 million were included in "Prepaid expenses and other assets" and "Other long-term assets", respectively, in the Consolidated Balance Sheets as of December 31, 2023. Capitalized implementation costs totaled $17.8 million, of which $1.2 million and $16.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets", respectively, in the Consolidated Balance Sheets as of December 31, 2022. Amortization of these capitalized implementation costs totaled $1.9 million during 2023, which is included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Tacoma Site Closure

In January 2021, we announced plans to close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022. The Tacoma facility's land, building and certain equipment assets of $15.4 million were included in "Assets held for sale" in the Consolidated Balance Sheets as of December 31, 2022. The sale of these assets was completed in the first quarter of 2023 for $19.9 million. We recorded a $3.4 million gain for the sale of these assets in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations.

Leadership Change and Overhead Restructuring

As previously announced on January 6, 2023, Mr. Barry A. Ruffalo's employment as President and Chief Executive Officer was terminated and he was succeeded by Mr. Jaco van der Merwe. In accordance with the terms of Mr. Ruffalo's separation agreement, we recorded $1.8 million of restructuring costs during the first quarter of 2023 related to the modification of Mr. Ruffalo's equity awards as well as third-party transition support costs in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. The related recovery of $1.6 million of previously incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Management continually reviews our organizational structure and operations to ensure they are optimized and aligned with achieving our near-term and long-term operational and profitability targets. In connection with this review, in February 2023, we implemented a limited restructuring plan to right-size and reduce the fixed cost structure of certain overhead departments. Total charges of $5.5 million for employee termination costs, including equity award modifications, were recorded in "Restructuring, impairment and other asset charges, net" and the related recovery of $1.0 million of previously incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the year ended December 31, 2023.

37 BP Litigation

On October 5, 2023, a jury rendered a verdict against our Telsmith, Inc. subsidiary in the matter styled 37 Building Products, Ltd. ("37 BP") v. Telsmith, Inc. ("Telsmith"), et al. originally filed on January 28, 2019. On December 19, 2023, a judgment was issued in the amount of $7.9 million (the “Judgment”) which takes into account credit for settlement amounts of all other defendants in this case. 37 BP alleged breaches of warranty and negligent misrepresentation regarding equipment manufactured by Telsmith and purchased by 37 BP in 2017 through one of our dealers. Based on the jury verdict, we recorded a loss contingency of $6.4 million in "Selling, general and administrative expenses" in the Consolidated Statements of Operations and "Other current liabilities" in the Consolidated Balance Sheets during the third quarter of 2023 representing management's best estimate of the loss at that time. During the fourth quarter of 2023, the loss contingency was increased $1.5 million based on the Judgment to a total of $7.9 million for the year ended December 31, 2023. See Note 16, Commitments and Contingencies of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of this matter.

Industry and Business Condition

Our financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets we serve. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, privately funded infrastructure development and changes in the prices of liquid asphalt, oil, natural gas and steel. In addition, many of our markets are highly competitive, and our products compete worldwide with similar products produced and sold by a number of other manufacturers and dealers.

Backlog represents the dollar value of firm orders for equipment, parts and related installation which are expected to be recognized in net sales in the future. Firm orders are signed commitments from customers to complete a purchase for machinery, equipment or parts that is expected to be noncancellable and are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Backlog is not a measure defined by accounting principles generally accepted in the United States of America ("U.S. GAAP"), and our methodology for determining backlog may vary from the methodology used by other companies in

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determining their backlog amounts. In addition, our backlog should not necessarily be viewed as an accurate indicator of revenue for any particular period and there is no guarantee that our backlog will be converted to net sales.

Backlog levels provide management and investors additional details of committed orders that are expected to convert to future net sales. Management uses backlog information for capacity and resource planning as well as to monitor inventory levels in our facilities relative to expected future net sales.

Our $569.8 million backlog of orders as of December 31, 2023 continues to remain strong. The backlog of orders decreased $342.9 million, or 37.6%, compared to $912.7 million as of December 31, 2022. The decrease in backlog was driven by 2023 sales delivery outpacing new orders compared to a build of backlog throughout 2022, which was largely due to strong customer demand and logistics and manufacturing throughput disruptions. We have experienced a reduction in new order intake and expect backlog to continue to decline primarily from our dealer customers as macroeconomic factors such as inflation and increased interest rates, among other factors, influence spending patterns. In addition, our shorter production lead times allow for customers to place orders closer to when the equipment delivery is desired. We are also focused on prudent expansion of our production capacity that we anticipate will allow us to more effectively convert backlog to sales in the future with greater efficiency and shorter lead times.

Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States. As federal highway funding programs have consistently been in place for several decades, we believe that these funding programs provide stability in the purchasing decisions of our customers by allowing them to plan and execute longer-term projects with federal legislation in place over a multi-year period. The U.S. government enacted the Infrastructure Investment and Jobs Act ("IIJA") in November 2021 as a replacement for the prior program. The IIJA allocates $548 billion in government spending to new infrastructure over the five-year period concluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects. We believe that multi-year highway programs (such as the IIJA) have a positive impact on the domestic road construction industry.

Significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix and, to a lesser extent, concrete as surface choices for roads and highways. Liquid asphalt is a by-product of oil refining. An increase or decrease in the price of oil impacts the cost of asphalt, which is likely to alter demand for asphalt and therefore affect demand for certain of our products. While increasing oil prices may have a negative financial impact on many of our customers, our equipment can use a significant amount of reclaimed asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of asphalt for the customer. We continue to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt. While oil prices had declined from the peak prices in 2022, throughout 2023 they have remained at relatively high levels. Price volatility continues to make it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. Oil prices have routinely fluctuated in recent years and are expected to continue to fluctuate in the future. Based on the current macroeconomic environment, including ongoing international conflicts, we anticipate that oil prices will remain at relatively high levels throughout 2024.

Steel is a major component of our equipment. Steel prices stabilized at historically high levels at the end of 2022 and have held relatively steady at these levels throughout 2023, with increases in the first half of the year offset by price declines in the second half. We anticipate that steel prices will remain at relatively high levels throughout 2024. Lead times increased during the first quarter of 2023 driven by stronger demand, followed by a normalization in the second half of the year before falling late in the year due to price increases announced by both domestic and international mills. We anticipate that steel demand will remain relatively stable in 2024, driven by the IIJA domestically and impacted by international production capacity. We continue to employ flexible strategies to ensure supply and minimize the impact of price volatility. Potential ongoing constraints in the supply of certain steel products may continue pressuring the availability of other components used in our manufacturing process. Furthermore, given the volatility of steel prices and the nature of our customers' orders, we may not be able to pass through all increases in steel costs to our customers, which negatively impacts our gross profit and margins.

We actively manage our global supply chain for any identified constraints and volatility. Supply chain constraints experienced in prior periods have eased recently, however, lead times for certain key supplies remain elongated. We continue to focus on identifying and qualifying alternative suppliers wherever possible, to help alleviate any lagging or potential future challenges in our supply chain. We also continually monitor potential future supply costs and availability in an effort to proactively address challenges that might occur.

In addition, while we have continued to experience shortages of necessary production personnel in certain markets, we have seen a slight easing in the tight labor market. Higher labor costs to attract staff in our manufacturing operations are continuing to be at elevated levels, and increases are expected to continue into 2024. We continue to adjust our production schedules and manufacturing workload distribution, provide comprehensive training, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.

Whenever possible, we attempt to cover increased costs of production by adjusting the prices of our products. The markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. Through our

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operational excellence initiatives, we also strive to minimize the effect of inflation through cost reductions and improved manufacturing efficiencies.

Results of Operations: 2023 vs. 2022

Net Sales

Net sales increased $63.7 million, or 5.0%, to $1,338.2 million in 2023 from $1,274.5 million in 2022. The increase in net sales was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increases in (i) equipment sales of $29.9 million, (ii) service and equipment installation revenue of $27.9 million and (iii) parts and component sales of $14.5 million. These increases were partially offset by decreased used equipment sales of $5.6 million. Sales reported by our foreign subsidiaries in U.S. dollars for 2023 would have been $8.1 million higher had foreign exchange rates been the same as the 2022 rates.

Domestic sales for 2023 were $1,083.4 million, or 81.0% of net sales, compared to $1,014.3 million, or 79.6% of net sales, for 2022, an increase of $69.1 million, or 6.8%. Domestic sales increased primarily due to increases in (i) equipment sales of $37.0 million, (ii) service and equipment installation revenue of $22.1 million and (iii) parts and components sales of $16.1 million. These increases were partially offset by decreased used equipment sales of $3.1 million.

International sales for 2023 were $254.8 million, or 19.0% of net sales, compared to $260.2 million, or 20.4% of net sales, for 2022, a decrease of $5.4 million, or 2.1%. International sales decreased primarily due to lower equipment sales of $7.1 million partially offset by higher service and equipment installation revenue of $5.8 million.

Gross Profit

Consolidated gross profit for 2023 was $330.8 million, or 24.7% of net sales, as compared to $264.1 million, or 20.7% of net sales, in 2022, an increase of $66.7 million, or 25.3%. The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated $104.8 million higher gross profit and $2.3 million of gross profit generated by an acquired business. These increases were partially offset by the impact of inflation on materials, labor and overhead of $40.8 million. While manufacturing efficiencies were generated in 2023 primarily due to the impact of cost savings initiatives and favorable inventory adjustments inclusive of an out-of-period benefit of $1.9 million associated with the correction of over-accruals of inventory-related expenses recorded in the first quarter of 2023, such efficiencies were offset by increased warranty costs resulting in relatively consistent manufacturing efficiencies year-over-year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2023 were $276.4 million, or 20.7% of net sales, compared to $247.6 million, or 19.4% of net sales, for 2022, an increase of $28.8 million, or 11.6%, primarily due to (i) increased net payroll and employee benefit costs of $13.6 million, which was largely driven by general employee cost increases and higher annual incentive compensation costs of $5.5 million, partially offset by lower share-based compensation expense of $3.8 million mainly related to the recovery of share-based compensation expense for awards that were forfeited or modified in conjunction with the termination of our previous Chief Executive Officer ("CEO") and the limited overhead restructuring action implemented in February 2023 and lower health insurance costs of $2.0 million, (ii) a $7.9 million loss contingency recorded related to the 37 BP litigation, (iii) $4.3 million increased consulting, prototype and project costs, (iv) $3.9 million of increased costs related to our strategic transformation program, (v) $2.8 million of higher exhibit and promotional costs primarily due to the ConExpo industry trade show held once every three years and (vi) incremental expenses associated with the acquisition of MINDS Automation Group, Inc. ("MINDS"), of $1.1 million. These increases were partially offset by lower amortization expense of $3.3 million and reduced acquisition and integration related costs of $2.1 million primarily associated with the acquisition of MINDS.

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Restructuring, Impairment and Other Asset Charges, Net

Restructuring, asset impairment charges and the net gains on the sale of property and equipment for the years ended December 31, 2023 and 2022 are presented below:

See Note 21, Strategic Transformation and Restructuring, Impairment and Other Asset Charges, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of the individual restructuring actions taken and the impairment charges recorded.

Interest Expense

Interest expense of $8.9 million was incurred for the year ended December 31, 2023 as compared to $2.5 million for the year ended December 31, 2022, an increase of $6.4 million, primarily related to higher outstanding borrowings on our revolving credit facility.

Income Tax Provision

Income tax expense for the year ended December 31, 2023 was $9.1 million, reflecting a 21.3% effective tax rate, compared to $5.0 million for the year ended December 31, 2022, reflecting a 113.6% effective tax rate. Our effective tax rates are affected by recurring items which are generally consistent from period to period, as well as discrete items that may occur but are not consistent from period to period.

The item having the most significant impact on the effective tax rate for 2023 is a net benefit of $1.8 million for research and development tax credits. The items having the most significant impact on the effective tax rate for 2022 include discrete tax expense for a foreign valuation allowance of $5.5 million for net operating losses ("NOLs") at our Brazilian subsidiary partially offset by the net benefits of $2.1 million for research and development tax credits and $0.9 million from the foreign derived intangible income deduction. Future utilization of our NOLs and state tax credit carryforwards is evaluated on a periodic basis, and the valuation allowance is adjusted accordingly. There is no guarantee that we will not incur additional valuation allowances to our NOLs.

Backlog

The backlog of orders at December 31, 2023 was $569.8 million compared to $912.7 million at December 31, 2022, a decrease of $342.9 million, or 37.6%. Domestic and international backlogs decreased $323.2 million, or 41.8%, and $19.7 million, or 14.1%, respectively. The backlog decreased $162.5 million to $404.6 million in the Infrastructure Solutions segment and decreased $178.5 million to $162.7 million in the Materials Solutions segment. The Corporate and Other backlog represents our controls and automation business and totaled $2.5 million as of December 31, 2023, a decrease of $1.9 million. The decrease in backlog was driven by 2023 sales delivery outpacing new orders compared to a build of backlog throughout 2022, which was largely due to strong customer demand and logistics and manufacturing throughput disruptions. We have experienced a reduction in new order intake and expect backlog to continue to decline primarily from our dealer customers as macroeconomic factors such as inflation and increased interest rates, among other factors, influence spending patterns. In addition, our shorter production lead times allow for customers to place orders closer to when the equipment delivery is desired. We are also focused

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on prudent expansion of our production capacity that we anticipate will allow us to more effectively convert backlog to sales in the future with greater efficiency and shorter lead times.

Net Sales by Segment

Infrastructure Solutions

Sales in this segment were $878.8 million for 2023 compared to $847.4 million for 2022, an increase of $31.4 million, or 3.7%. The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increased service and equipment installation revenue and parts and component sales of $23.0 million and $15.9 million, respectively. These increases were partially offset by lower new and used equipment sales of $4.4 million and $3.4 million, respectively.

Domestic sales for the Infrastructure Solutions segment increased by $40.0 million, or 5.7%, for 2023 compared to 2022 primarily due to increases in (i) service and equipment installation revenue of $21.9 million, (ii) parts and component sales of $17.4 million and (iii) equipment sales of $3.6 million. These increases were partially offset by lower used equipment sales of $3.1 million.

International sales for the Infrastructure Solutions segment decreased $8.6 million, or 6.0%, for 2023 compared to 2022 primarily due to decreased equipment sales of $8.0 million.

Materials Solutions

Sales in this segment were $450.0 million for 2023 compared to $422.7 million for 2022, an increase of $27.3 million, or 6.5%. The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increased equipment sales and service and equipment installation revenue of $30.2 million and $4.7 million, respectively. These increases were partially offset by decreased other revenue of $3.9 million primarily driven by increased utilization of our interest subsidy programs offered to some of our dealer customers.

Domestic sales for the Materials Solutions segment increased $27.8 million, or 9.1%, for 2023 compared to 2022 primarily due to increased equipment sales of $32.8 million partially offset by decreased other revenue of $3.7 million primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers.

International sales for the Materials Solutions segment decreased $0.5 million, or 0.4%, for 2023 compared to 2022 primarily due to decreased new and used equipment sales of $2.6 million and $2.2 million, respectively, partially offset by higher service and equipment installation revenue of $4.6 million.

Corporate and Other

Corporate and Other sales are generated from our controls and automation business. Sales were $9.4 million for the year ended December 31, 2023 compared to $4.4 million for the same period in 2022, an increase of $5.0 million, or 113.6%. The increase was primarily related to net incremental sales from MINDS during the first quarter of 2023. The MINDS acquisition was completed on April 1, 2022 and results of operations have been consolidated from that date.

Segment Operating Adjusted EBITDA

Segment Operating Adjusted EBITDA is the measure of segment profit or loss used by our Chief Executive Officer, whom is determined to be the chief operating decision maker ("CODM"), to evaluate performance and allocate resources to the operating segments. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in the evaluation of ongoing operating performance. This non-GAAP financial measure can be useful to investors in understanding operating results and the performance of our core business from management's perspective. Our presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and is not necessarily indicative of the results of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the periods presented. See Note 19, Operations by Industry Segment and Geographic

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Area, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.

Infrastructure Solutions

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $105.8 million for 2023 compared to $73.0 million for 2022, an increase of $32.8 million, or 44.9%. The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable pricing partially offset by net unfavorable volume and mix that generated $73.8 million higher gross profit and manufacturing efficiencies of $2.8 million. Manufacturing efficiencies were primarily due to the impact of cost savings initiatives and favorable inventory adjustments inclusive of the impact of an out-of-period benefit of $1.9 million associated with the correction of over-accruals of inventory-related expenses recorded in the first quarter of 2023, which were partially offset by operating inefficiencies. These increases to Segment Operating Adjusted EBITDA were partially offset by the impact of higher inflation on materials, labor and overhead costs of $25.5 million and increased selling, general and administrative costs of $18.5 million, primarily due to $15.1 million higher personnel related costs largely driven by general employee cost increases and higher annual incentive compensation costs.

Materials Solutions

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $50.8 million for 2023 compared to $44.5 million for 2022, an increase of $6.3 million, or 14.2%. The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable pricing that generated $31.7 million higher gross profit. While manufacturing efficiencies were generated in 2023 primarily due to the benefit of cost savings initiatives, such efficiencies were offset by increased warranty program costs and operating inefficiencies resulting in relatively consistent manufacturing efficiencies year-over-year. These Segment Operating Adjusted EBITDA increases were partially offset by the impact of higher inflation on materials, labor and overhead costs of $15.3 million and increased selling, general and administrative costs of $10.9 million, primarily due to a $7.9 million loss contingency recorded related to the 37 BP litigation and $3.0 million of higher personnel related costs.

Corporate and Other

Corporate and Other operations had net expenses of $44.9 million for 2023 compared to $46.5 million for 2022, a decrease of $1.6 million or 3.4%. The decrease in expenses was primarily driven by $2.2 million of lower general and administrative expenses, primarily associated with personnel related costs including the recovery of share-based compensation expense related to awards forfeited or modified in conjunction with the termination of our previous CEO and the limited overhead restructuring action implemented in February 2023 partially offset by increased technology support costs. Additionally, an incremental $1.5 million of profit was contributed by MINDS during the first quarter of 2023. The MINDS acquisition was completed on April 1, 2022 and results of operations have been consolidated from that date.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under a $250.0 million revolving credit facility and cash flows from operations. As of December 31, 2023, our total liquidity was $234.5 million, consisting of $59.8 million of cash and cash equivalents available for operating purposes and $174.7 million available for additional borrowings under our revolving credit facility, to the extent our compliance with financial covenants permits such borrowings. Our foreign subsidiaries held $25.1 million of cash and cash equivalents available for operating purposes which is considered to be indefinitely invested in those jurisdictions.

Our future cash requirements primarily include working capital needs, debt service obligations, capital expenditures, vendor hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments. In addition, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including, but not limited to, our strategic transformation initiatives and strategic acquisitions and share repurchases under our share repurchase authorization. We believe that our current working capital, cash flows generated from future operations and available capacity under our revolving credit facility will be sufficient to meet working capital and capital expenditure requirements for our existing business for at least the next 12 months.

On December 19, 2022, we entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which replaced the previously existing credit facility with a borrowing capacity of $150.0 million and a maturity date of December 29, 2023 (the "Previous Credit Facility"). The Credit

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Agreement provides for (i) a revolving credit facility (consisting of revolving credit loans and swingline loans) and a letter of credit facility, in an aggregate amount of up to $250.0 million, (ii) an incremental credit facility in an aggregate amount not to exceed $125.0 million (the "Credit Facilities") and (iii) a maturity date of December 19, 2027.

We had $72.0 million and $78.0 million in outstanding borrowings under the Credit Facilities at December 31, 2023 and 2022, respectively. Our outstanding letters of credit totaling $3.3 million decreased borrowing availability to $174.7 million under the revolving credit facility as of December 31, 2023. We anticipate continuing to utilize the Credit Facilities with more frequency in the near-term to support our working capital needs. The Credit Agreement contains certain financial covenants, including requirements related to our Consolidated Total Net Leverage Ratio and Consolidated Interest Coverage Ratio, each as defined in the agreement. Failure to satisfy these covenants could result in the accelerated repayment of our indebtedness. We were in compliance with all covenants of the Credit Facilities at December 31, 2023. Due to the increased borrowings under our Credit Facilities and higher interest rates, we expect our interest expense in the near-term to remain at elevated levels.

Our Brazilian subsidiary maintains a separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility.

Certain of our international subsidiaries in Australia, Brazil, Canada, South Africa and the United Kingdom each have separate credit facilities with local financial institutions primarily to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. In addition, the Brazilian subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc. and/or secured with certain assets of the local subsidiary.

We regularly enter into agreements primarily to purchase inventory in the ordinary course of business. As of December 31, 2023, open purchase obligations totaled $177.7 million, of which $153.5 million are expected to be fulfilled within one year.

We estimate that our capital expenditures will be between $25 and $35 million for the year ending December 31, 2024, which may be impacted by general economic, financial or operational changes and competitive, legislative and regulatory factors, among other considerations.

Cash Flows

The following table summarizes cash flows during the years ended December 31, 2023 and 2022, respectively:

Net cash provided by (used in) operating activities

Our operating activities provided net cash of $27.8 million during 2023 as compared to a net use of $73.9 million in cash during 2022. This increase is primarily due to reduced net cash usages from our operating assets and liabilities of $60.7 million and higher net income reduced by non-cash charges of $41.8 million. The reduced net cash usages for our operating assets and liabilities were mainly driven by the timing of collections on trade accounts receivables $48.5 million and decreased inventory purchases in 2023 of $33.4 million partially offset by the timing of payments on trade accounts payables of $17.8 million and decreased customer deposits of $8.9 million associated with lower backlog.

Net cash used in investing activities

Net cash used in investing activities decreased by $40.3 million during 2023 as compared to 2022 primarily due to the cash inflows from the sale of the Tacoma facility's land, building and certain equipment assets for $19.9 million in the first quarter of 2023 and the net cash used to acquire MINDS in the second quarter of 2022 for $17.8 million.

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Net cash (used in) provided by financing activities

Our financing activities used net cash of $18.3 million during 2023 as opposed to providing net cash of $60.1 million during 2022 primarily due to increased net repayments on borrowings of $89.7 million partially offset by repurchases of stock under our share repurchase program of $10.1 million in 2022 that did not recur.

Financial Condition

Our current assets increased to $719.5 million at December 31, 2023 from $696.4 million at December 31, 2022, an increase of $23.1 million, or 3.3%, due primarily to increased inventories of $62.2 million. This increase was partially offset by decreased trade and other net receivables and contract assets of $20.9 million, the sale of our Tacoma site previously recorded as "Assets held for sale" for $15.4 million and decreased cash, cash equivalents and restricted cash of $2.8 million. Accounts receivable days outstanding decreased from 44.5 in 2022 to 40.7 in 2023.

Our current liabilities increased to $299.0 million at December 31, 2023 from $274.0 million at December 31, 2022, an increase of $25.0 million, or 9.1%, primarily due to increases of $9.7 million in accounts payable, $8.8 million in accrued employee related liabilities and $4.6 million in accrued product warranty.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. Application of these principles requires us to make estimates and judgments that affect the amounts as reported in the consolidated financial statements. Accounting policies involving estimates that are critical to our financial statements are described below. These and other accounting policies are more fully described in Note 2, Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Inventory Valuation: Inventories are valued at the lower of first-in, first-out cost or net realizable value. The most significant component of our inventories is steel. Open market prices are subject to volatility and determine our cost of steel. During periods when open market prices decline, we may need to reduce the carrying value of the inventory. In addition, certain items in inventory become obsolete over time, and we reduce the carrying value of these items to their net realizable value. These reductions are determined by management based on estimates, assumptions and judgments made from the information available at that time. We do not believe it is reasonably likely that the inventory values will materially change in the near future.

Product Warranty Reserves: We accrue for the estimated cost of product warranties at the time revenue is recognized. Warranty obligations by product line or model are evaluated based on historical warranty claims experience. Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and current period machine shipments. If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from our estimates, revisions to the estimated warranty liability may be required.

Self-Insurance Reserves: We retain the risk for a portion of our workers' compensation claims and general liability claims by way of a captive insurance company, Astec Insurance. Undiscounted reserves for claims and potential claims related to general liability and workers' compensation are actuarially determined to cover the ultimate cost of each claim based on our evaluation of the type and severity of individual claims and historical information, primarily our own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. However, we do not believe it is reasonably likely that the reserve level will materially change in the foreseeable future.

We are also self-insured for health and prescription claims under our Group Health Insurance Plan for all of our domestic employees. We maintain a reserve for the self-insured health plan that includes both unpaid claims and an estimate of claims incurred but not reported, based on historical claims and payment experience. Historically, the reserves have been sufficient to provide for claims payments. Changes in actual claims experience or payment patterns could cause the reserve to change, but we do not believe it is reasonably likely that the reserve level will materially change in the near future.

Capitalization of Internal Use Software: We capitalize certain software development costs during the application development stage, including those associated with our multi-year phased ERP implementation. These costs include personnel expenses for employees and costs for third-party consulting services which are directly associated with the implementation. Capitalization for each phase ends once the implementation for that phase is substantially complete, at which point the capitalized costs are amortized ratably over the remaining contract term plus any reasonably certain renewal periods. There is judgment involved in estimating the stage of development and the internal costs allocated to the implementation. A change in these estimates could materially impact the amount capitalized, the associated amortization expense in subsequent periods and the amount of expenses recognized in current periods that do not qualify for capitalization.

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Goodwill and Other Intangible Assets Impairment: Goodwill is tested for impairment annually on October 1, or more frequently, if events or circumstances indicate that the carrying amount of the asset may not be recoverable. Goodwill is allocated to, and evaluated for impairment at, four identified reporting units.

Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors that includes, but is not limited to, the macroeconomic conditions, industry and competitive environment conditions, overall financial performance, business specific events and market considerations to determine whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. We may elect not to perform the qualitative assessment for some or all reporting units and perform the quantitative impairment test.

The quantitative goodwill impairment test requires us to compare the carrying value of the reporting unit's net assets to the fair value of the reporting unit. We determine fair values of each reporting unit using an equally weighted combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. This analysis requires significant assumptions, including projected net sales, projected earnings before interest, tax, depreciation and amortization, terminal growth rates, the cost of capital, the selection of appropriate guideline companies and related valuation multiples. Our estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be utilized by a hypothetical market participant.

We performed a qualitative analysis during 2023 on our four reporting units whereby the fair values of each reporting unit exceeded its carrying value and therefore no indicators of impairment existed. As of December 31, 2023 and 2022 the net carrying amount of goodwill was $46.3 million and $45.2 million, respectively. No goodwill impairment charges were recognized in 2023, 2022 or 2021.

Intangible assets with definite lives are tested for impairment if conditions exist that indicate the carrying value may not be recoverable. Risk factors that may be considered include an economic downturn in the general economy, a geographic market or the commercial and residential construction industries, a change in the assessment of future operations as well as the cyclical nature of our industry and the customization of the equipment we sell, each of which may cause adverse fluctuations in operating results. Other risk factors considered would be an increase in the price or a decrease in the availability of oil that could reduce the demand for our products in addition to the significant fluctuations in the purchase price of raw materials not recoverable through selling price increases that could have a negative impact on the cost of production and gross profit as well as others more fully described in the Part I, Item 1A. Risk Factors section of this Annual Report on Form 10-K. Some of the inputs used in the impairment testing are highly subjective and are affected by changes in business factors and other conditions. Changes in any of the inputs could have an effect on future tests and result in impairment charges.

Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We periodically assess the need to establish valuation allowances against our deferred tax assets to the extent we no longer believe it is more-likely-than-not that the tax assets will be fully utilized. Judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. Liabilities for uncertain income tax positions are based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more-likely-than-not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires an estimate and measurement of the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to accrued taxes.

Recent Accounting Changes and Pronouncements

See Note 2, Basis of Presentation and Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting pronouncements applicable to us and the impact of those standards on our consolidated financial statements and related disclosures.

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